My Turn: Concord is no San Francisco
The Monitor’s Jan. 31 editorial, “Hard year for commercial property” glosses over the dichotomy between national trends where commercial properties in “A” markets such as Boston, New York, Washington, Chicago and San Francisco have more than rebounded from the Great Recession of 2008 and secondary and tertiary markets such as Concord, with a population of just 42,000.
The point is that lower vacancy rates and commercial property selling at 5 and 6 percent capitalization rates (essentially the imputed rate of return based on the purchase price) in Boston and New York do not migrate to smaller markets. There is no global capital funding flowing to Concord. No insurance companies or pension funds are investing in Concord. Vacancies are not decreasing; at best they are flat or increasing. Rents are not increasing, again flat at best, which means landlords and owners are absorbing increasing costs of maintenance, insurance and utilities because local tenants, for the most part, will not pay more rent.
In Concord in the first half of 2012 there were only five arm’s-length sales of commercial properties. In 2011, there were only seven, according to a city assessor’s summary presented to the Greater Concord Chamber of Commerce. The ratio of the sales price to the assessed prices for these properties were projected over more than 1,000 commercial properties. This small base is not significant and thus the projection is spurious.
As a commercial real estate broker and adviser, my firm has not sold commercial property in New Hampshire at less than a 7.75 percent capitalization rate. While the average increase in commercial property assessments in Concord was 11 to 13 percent (as represented to the city council) many properties were two or three times that amount. We have looked at 39 properties for 11 clients; the lowest increase was 19.6 percent, and the highest was 73.2 percent. This is since 2010 (two years). The city’s explanation was that the 2010 assessment was based on data from 2008 and 2009 when values plummeted, and (again) that according to larger-market national trends reported in the national media, vacancies were reputed to be declining, refinancing rates were lower and capitalization rates were trending down (2008 and 2009). While these trends may be true for the “A” markets, they are not the case for Concord.
Of the 39 Concord properties cited above, 33 or 34 are now over-assessed (26 of them significantly). It is a very difficult situation. The city budget is set, the tax rate is set and a significant over-assessment could result (through the abatement process over the next 12 to 26 months) in more than $2 million in abatements.
At issue is the fair market value of these commercial properties on April 1, 2012. Increases of 30, 40 or 50 percent from 2010 are not logical. This is a complex equation. There are no simple answers, but the commercial reassessment has overreached significantly. In time, the abatement and appeals process will provide relief to most of those over-assessed. This will be a painful, learning experience for the city and city council. But it is possible to get back to a more equitable allocation.
(Bill Norton of Concord is president of Norton Asset Management, a commercial real estate advisory firm based in Manchester.)